Instant payment service FedNow offers individuals and businesses many benefits including greater efficiency, quicker access to their money, and reduced transaction costs. Yet, unlike conventional, slower payment methods, FedNow doesn’t offer any form of payment reversal or chargeback functionality.
That begs the question: Will FedNow eliminate chargebacks entirely? Not quite, according to an industry professional.
We recently caught up with Rodrigo Figueroa, COO at Chargeback Gurus. He talked about what FedNow means for chargebacks and how businesses using the instant payment service can continue to protect themselves and their customers from fraud.
Our conversation with Rodrigo Figueroa is shared below.
Crowdfund Insider: Can you provide a brief overview of Chargeback Gurus. What do you do and how do you differ from other companies in the chargebacks and fraud space?
Rodrigo Figueroa: Chargeback Gurus helps businesses protect and recover revenue by providing innovative, technology-enhanced chargeback management solutions. We operate with honesty and transparency and align with the goals of each individual client. One of the ways we differ from other companies in this space is the wealth of data and analytics we provide our clients.
This helps them identify vulnerabilities and operational issues that are causing chargebacks. We also have a lot of flexibility in our implementation. We can work with or without integration, manage chargebacks end-to-end or collaborate with internal teams.
Crowdfund Insider: I want to get into chargebacks and fraud with FedNow’s instant payment service, but first can you explain how your customers are currently handling disputes and fraud? How does Chargeback Gurus help?
Rodrigo Figueroa: Merchants employ a multifaceted approach to manage disputes and combat fraud in their transactions. To proactively prevent issues, they implement robust authentication methods, including two-factor authentication and address verification systems, enhancing the security of the checkout process. Merchants also leverage advanced fraud detection tools such as machine learning algorithms and third-party screening services to analyze transaction patterns and identify potentially fraudulent activities in real-time. Additionally, they employ measures like requiring the Card Verification Value (CVV) during transactions and closely monitoring for unusual transaction patterns.
In the event of disputes, merchants prioritize effective communication with customers by providing clear transaction details and order confirmations. They establish customer support systems to promptly address concerns and inquiries, reducing the likelihood of disputes. Chargeback management is a crucial aspect, requiring merchants to investigate disputes, provide evidence of transactions, and collaborate with payment processors to navigate the resolution process efficiently. Furthermore, merchants adhere to data security practices, encrypting sensitive information and ensuring compliance with industry regulations. By continually updating strategies to address evolving fraud risks and maintaining a customer-centric focus, merchants work towards fostering trust and security in their transactions.
We at Chargeback Gurus help merchants on that specific part of the life cycle. We have great experience in supporting investigations, understanding what evidence is required to dispute those chargebacks, creating custom dispute packages, and managing chargebacks end-to-end. Additionally, we provide our clients with a best-in-class platform where they can drill down for a lot of insights such as where chargebacks are coming from, current trends, best practices to reduce some of the pressure, etc.
Crowdfund Insider: Let’s talk about FedNow. We know it offers individuals and businesses many benefits including greater efficiency, quicker access to their money, and reduced transaction costs. Yet, unlike conventional, slower payment methods, FedNow doesn’t offer any form of payment reversal or chargeback functionality. Can you walk through how FedNow will handle disputes?
Rodrigo Figueroa: Presently, the capability to provide consumer payments is significantly constrained, if not entirely absent. This restriction stems from the fact that FedNow is presently accessible exclusively to Banks and Credit Unions. Although there have been discussions about the possibility of FedNow expanding its ecosystem to encompass additional use cases, including consumer payments, no definitive announcements have been made thus far. When such an expansion occurs, it is anticipated that a well-defined framework will be established for the utilization of the ecosystem and the implementation of consumer protections, encompassing protocols for handling disputes. However, it is a concern that we may still be several years away from witnessing these developments.
What does this mean for chargebacks moving forward? Will FedNow put an end to them?
Rodrigo Figueroa: The necessity for a dispute resolution framework persists as long as two parties engage in business transactions, whether we choose to label them as chargebacks or not. Sometimes people want to oversimplify commerce and consumer payments to fit into a new model. Instead, the focus should be on understanding the essential elements for a just ecosystem that caters to the needs of all participants. This involves providing the necessary tools, including robust dispute mechanisms, to safeguard consumers. The approach should prioritize a thorough comprehension of the requirements before constructing a framework that ensures fairness for all involved parties.
Crowdfund Insider: How can merchants who use the instant payment service continue to protect themselves and their customers from fraud?
Rodrigo Figueroa: As previously stated, merchants will be unable to leverage FedNow until the ecosystem becomes accessible to a wider range of participants. However, this situation is not novel. Whether on an international or domestic scale, merchants have historically explored alternatives to card networks, utilizing alternative payment methods like PIX in Brazil or Venmo in the US. The key challenge lies in the absence of well-defined frameworks for consumer protection, hindering the widespread adoption of these new options by consumers. Many of the same fraud prevention principles will apply regardless of the payment method, but the details can change depending on what identifying information is available to authenticate customers.
Crowdfund Insider: How are other rising trends like AI and open banking impacting chargebacks and fraud?
Rodrigo Figueroa: The convergence of AI and open banking is reshaping the dynamics of chargebacks and fraud in the financial and e-commerce sectors. The payment industry, being an early adopter of AI, has leveraged advanced pattern recognition and machine learning models to play a pivotal role in enhancing fraud detection. AI scrutinizes vast datasets to identify anomalies, enabling the detection of irregular transaction behaviors and contributing to the dynamic evolution of fraud prevention systems over time. Furthermore, behavioral biometrics, a facet of AI, analyzes user interactions to establish unique patterns for identity verification, bolstering both security and accuracy in digital transactions.
The rising trend of open banking introduces increased connectivity and data sharing between financial institutions, fostering comprehensive customer profiles. However, it also necessitates stringent security measures to protect sensitive information from unauthorized access. As technology evolves, adaptive authentication, facilitated by AI, offers dynamic risk-based approaches to transaction security. AI-driven predictive analytics anticipates potential fraudulent activity by analyzing historical data, allowing businesses to implement preventive measures before fraud occurs. Despite these advancements, the transformative impact of AI and open banking poses challenges that require constant innovation. The increased connectivity demands robust cybersecurity measures in open banking to guard against data breaches and unauthorized access, emphasizing the ongoing importance of proactive security practices in an ever-evolving payments ecosystem.
Crowdfund Insider: What changes to chargebacks and fraud can merchants expect in the years ahead?
Rodrigo Figueroa: Card networks are actively working to improve the chargeback experience for both consumers and merchants. Initiatives such as enhanced dispute resolution platforms and clearer communication channels aim to streamline the process, providing quicker resolutions and reducing the strain on all parties involved.
Moreover, advancements in technology, including artificial intelligence and machine learning, are being leveraged by card networks to refine fraud detection algorithms, minimizing false positives and creating a more nuanced understanding of genuine customer behavior. As the industry continues to innovate, merchants can expect a more user-friendly and efficient chargeback process that balances the need for robust fraud prevention with a seamless customer experience.
